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A Guide to Personal Investment Risk Management Strategy in 2020

  • November 11, 2020

If you're reading this, I'm earning money. Thanks for helping to feed my family. Please see our disclosure for more information. Also, any advice provided is for informational purposes only. I'm not a CPA, lawyer, or doctor, although my parents wanted me to be all three. So, talk to a professional before acting on anything you read below.

Personal Investment Risk Managemen

You always want to be prudent with your money, and making wise investments can make a difference in your life and future. When making decisions regarding what type of investment is best for you can be very tricky as you need to carefully examine where you are putting your money and if it is safe or not? It's certainly true that there are very few examples of a 100% risk-free investment there are degrees of risk you may want to consider. What level of risk is appropriate to you will always be a deeply personal decision, and we cannot tell you ultimately what to do. But this guide will give a reasonable summation of the types of risk and how to best craft your risk management strategy this year. Let's be honest, 2020 has been an incredibly bizarre year and extra care should be taken with every financial decision.

What type of investment you make will depend on what your goals are for your short, medium, and long-term finances are? You will need to think about accessibility to the funds. If you are looking for a financial solution for later life or retirement, then this will not be an issue. But if there is any chance you may suddenly be looking to realize your assets, this discounts various options. If you are looking at saving for a specific goal then there are plenty of fixed-term savings accounts and products available, these are generally low-risk, but low-interest as well. Perfect if you are wanting to set money aside. If you are looking longer term then there are many options, from property to shares and even investment vehicles such as pensions. One thing to be aware of with long term investments is

Consider Your Current Life Situation

Where are you in life? This is an important question as it will determine what outgoings you have and also whether they are essential or expendable. If you are young and single then much of your income will be classed as disposable, meaning that it is non-essential to your life. Much of your wages will be available for purchases such as nights out, clothes, drinking, etc. These are items that can be cut back upon to make investments relatively easily. But if you are a family person with children to look after then a much higher portion of your income will be non-disposable such as mortgage commitments or food and clothing for children. Plan so that you are not leaving yourself short. It is always important to remember that even disposable income should not be completely used up in savings as your quality of life now is as important as planning for the future.

Do a Risk Assessment

In any investment situation, it is key to do a thorough risk assessment as to how vulnerable your money is going to be to lower than expected returns and even losses. Research is the key here, any scheme that looks good will have a bunch of information attached to it, and it's important not to ignore the so-called 'small print'. What you should be ideally looking for is where, specifically, your money is going? Vague phrases such as, "We invest in a wide range of sectors to give you the best possible return on your investment" are fine for a short promotional leaflet. But on your request, your potential investment firm should be able to give you a more firm idea of where your money is going. You should ask for examples of the typical interest earned in previous years for past customers.

Consider Appointing an Advisor

A qualified financial advisor should be thought of as an investment rather than a cost that detracts from your wealth. A good financial advisor will have a wealth of knowledge, and contacts, to find the best investment vehicles for your money. There are plenty of websites that will offer to do the same as real life, flesh, and blood professional. But what you will get with a real pro is someone who can sit down with you and get to grips with where you are personally comfortable with your money going. A good advisor will not only advise on a single investment but rather devise a long-term life strategy for your finances.

Safe Bet Investments

Although nothing in life is guaranteed, there are some things which are very close to it. Some banks offer accounts and savings products with a guaranteed investment certificate. These certificates work as the bank guarantees a set investment for a set interest rate over a fixed period, securing your return. The advantages of this are obvious, but the downside is that although you have a guaranteed return, the interest is certainly capped at a low level. Low risk equals low reward.

Unusual Ways to Invest

When talking of investments we usually think of the obvious financial accounts, shares, pensions, and property, which is, pretty well, what we have been discussing so far in this article. But there are other areas where we can invest Think of physical assets. One option that many fall back on, especially in uncertain times is trading in gold. Precious and antique items can be a shrewd investment if one knows what they are doing. Jewelry, classic cars, art, and more can be possibilities. In recent years many have been speculating with and investing in the risky world of cryptocurrencies such as BitCoin.

How to Recover a Bad Situation

There is a theory known as the Sunken Cost Fallacy. What it means is that you keep honoring an investment that is not going well because you've invested so much in it and, accordingly you ignore logic and stubbornly wait for it to turn around. Unless you have good reason to believe otherwise, don't get caught in this trap. If things aren't working out, then cut your losses and move on to another investment. The possibility of a bad investment is also a good reason why you shouldn't keep all of your eggs in one basket, metaphorically speaking.

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